An Evidence-Based Approach to Exclusive Dealing and Loyalty Discounts

Abstract

At the recent Section 2 hearings focused on the antitrust analysis of exclusive dealing contracts, a sensible consensus view emerged that a necessary condition for anticompetitive harm in an exclusive dealing or de facto exclusive contract is that the contract deprives rivals of the opportunity to compete. These contracts, including market-share discounts and “loyalty discounts,” can harm competition when they deprive rivals of an entrenched firm from accessing distribution sufficient to achieve a minimum efficient scale. The recently-withdrawn Section 2 Report reflects this consensus. This article discusses the strengths and weaknesses of the Section 2 Report approach to exclusive dealing and loyalty discounts.

Keywords: antitrust, consumer, David Evans, entrant, entry, exclusion, free ride, Heide, monopolist, predation, retailers

JEL Classification: K21, L41, L42, L44